Share prices of Gail (India) Ltd, which gained more than 3% during intraday trades to climb fresh 52-week highs on Friday. Investor confidence remains strong in view of strong gas demand in the country.
International gas prices, although volatile, have softened significantly from earlier highs. The prices of Liquefied Natural Gas are significantly lower than the past two years, which is positive for gas demand in the country. . Not only compressed natural gas and piped natural gas demand is likely to help prospects, growing industrial demand is positive for GAIL, which remains the largest gas pipeline operator in the country and will see earnings improve supported by higher transmission and distribution revenues.
The gas demand in the country is also supported by new fertilizer capacities which have gradually come on stream and have become fully operational now. Analysts emphasize that after five years of decline, the offtake of gas from the electricity sector has recovered amid strong demand for power in the country. Also with lower LNG prices oil-to-gas arbitrage demand has recovered in refining and other industries.
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Analysts at Motilal Oswal Financial Services said moderate LNG spot prices are expected to have a positive impact on GAIL’s transmission business.
GAIL’s performance during the September quarter was already robust with high earnings growth 70% sequentially led by strong revenue from gas transmission and commercial segments and narrowing of loss in petchem segment.
Petchem segment outlook still remains weak as Chinese refiners have increased their petrochemical capacities, which may continue to keep pressure on petchem margins. However, overall outlook for GAIL’s earnings has improved with growing gas demand.
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Abhijeet Bora AVP at Sharekhan after Q2 results said he expects GAIL to post strong earnings recovery across its business segments supported by stabilizing global LNG supplies and improving price environment for its commodity businesses. Share valuation remained reasonable due to a steep discount compared to the historical average and an expectation of a strong earnings recovery and a healthy dividend yield of 4-5%.
To be sure, the allocation of domestic gas (APM Gas) for GAIL must go up. GAIL realizes much higher tariff (against approved by PNGRB), and is positive. But, with reduced allocation of APM gas, its costs are rising, said analysts at Kotak Institutional Equities.
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Updated: 01 Dec 2023, 14:18 IST